Investing and Property Management

I have had lots of people over the years ask me, in my opinion, what is the most important thing about investing in real estate? Everybody always assumes its price, location or timing the market correctly. After over 1300 real estate transactions primarily to investors worldwide, I can say without a doubt that property management is the single most important piece of the investing puzzle. In real estate, you can make a mistake on price, pick an iffy neighborhood, or hire a bad contractor and still be profitable. Hire the wrong property manager and you can lose your shirt overnight! Don’t get me wrong, location, price and rehab are huge factors in real estate investing and are very important. With the right property management company in place though you can make a mistake or experience a down turn in a market or neighborhood and still realize a good return on your investment through positive cash flow. A good property manager protects your investment in the long-term.

Obviously, the next question is “how do I find a good property manager”? Here are several tips on picking a good management company. This does not necessarily mean you; someone else will be managing your property.

Get a referral. Typically, when you invest, there are people in your peer group or circle of influence that are investing in the same market you are or know of someone who is also investing in that market. Ask them who they are using, who they used to use, and why they switched. Find out what they like about their management company but more importantly find out what they don’t like about them. The management company may do a great job of placing tenants but are lacking in the communication department; without communication, you’re sunk! Access to your management company is very important for the investor’s peace of mind. There is nothing worse than leaving a message or sending a couple of emails and all you hear are crickets in the background. At first, you assume they are busy and will get to you soon. After a while, though, investors start wondering why no one is responding and that’s when panic sets in. Did the tenant leave? Did the management company run off with my money? DID MY HOUSE BURN DOWN? Generally, none of the above is true but a good property manager will respond within 24 hours of your inquiry.

Ask the management company that you are considering doing business with for references. Ideally, I believe you want 5 to 10 references from previous clients as well as current clients that have been using the management company longer than 1 year. If they are not willing to provide you with any past clients, pass on them. When you get the references, CALL THEM. Ask them the same questions about what they like and don’t like.

Get a list of policies and procedures from the management company. You need to know how they handle marketing of the properties for tenants, late payments, evictions, maintenance calls, inspections, accounting, owner disbursements, etc. A good management company will have this information readily available.

Find out if the management company is licensed in the state you are investing in. Most states require that the property manager is a licensed real estate broker and are held accountable to their state real estate board. There are many “property managers” out there that are not, but have taken this opportunity to increase their income while investing is hot. Though they may be cheaper, DO NOT USE AN UNLICENSED MANAGEMENT COMPANY! You will have no recourse to police them.

Find out what software program the management company uses. There are a few good property management software programs that are web-based such as Buildium and PropertyWare that give the property owner a portal login so you can access your account via the web 24 hours a day. A good property management company will log all tenant calls, maintenance concerns, payments, late notices etc., into the software program. This is beneficial to both parties as a majority of an investor’s questions or concerns can be addressed by logging into the software program and looking at the info at hand there. This eliminates a lot of phone calls between the property manager and the owner. It also helps the owner to narrow down questions or concerns by addressing specific information found in their portal.

The reason for investing is to get paid. You need to know when the money comes in, where it’s at, what your expenses are, and when you get your payments. Most management companies reconcile accounts 1 month in arrears. Rents collected in 1 month are disbursed the following month for the simple fact that not all expenses come in time to get an accurate accounting to disburse rent proceeds in the same month. Each management company is different but should be able to tell you to the day when to expect payments on a monthly basis. You also need to know when to expect the quarterly or annual accounting needed for your tax man. Again, a good software program makes this much easier for the management company to keep track of and share with you.

To me, the fees that a management company charges are important but not as important as the previous items in this list. I have seen it over and over again where somebody picks one management company over another based solely upon fees. 3-6 months later after dealing with terrible tenants, bad accounting practices and more, the few hundred bucks they saved cost them literally thousands of dollars. Here is a brief run down on the fees you can expect to pay.

Monthly Management fee: usually 7-10% of collected rents depending on the market you are investing in. Higher rental amounts usually equate to lower monthly fee percentages and lower rents are higher percentages. A few companies will have a set monthly fee of somewhere between $50-$100 dollars per month.

Leasing Fee: usually 50-100% of the 1st month’s rent; again depending on average rent amounts. Most property management companies employ commissioned leasing agents that are usually paid a percentage of this fee up to 50%.

Set up Fee: this is charged for the time it takes to set up the new accounts, generate bank accounts etc., usually around $100 dollars.

Vacancy Fee: some management companies will charge a flat fee per month on a vacant unit. Their reasoning is that a vacant unit still requires someone to keep tabs on that property usually on a 1-2 week cycle to verify that the property is secure, yard is in good order, rental signs are in place and visible etc. I have found that only about 50% of property management companies charge for this service. Unfortunately, I have also found that half of the ones who don’t charge for this are not checking the properties periodically and sometimes a small issue turns into a bigger more expensive issue down the road.

Advertising Fees: most good property managers do not charge extra for the marketing of the vacant units to potential renters as they are paid when the properties become occupied and the advertising expense is covered by the leasing fee. Some property managers will give you the option of extra paid advertising if you have a property that is tougher to rent than usual.

Maintenance Fees: most management companies use maintenance as a profit center; some more than others! Due to the volume that some management companies do they are able to procure vendors at a much lower rate than what you could get on your own thereby allowing them to make a profit on certain maintenance items. Yard mowings are a great example of this. A large management company may be mowing 100 yards a season and can negotiate a volume deal at $15-$20 per yard to them. They, in return, “sell” this service to you at the market rate of $25-$30 per mowing. It is still a good deal for you as you are hands off and would expect to pay the same price if you were only contracting to have 1-2 yards mowed. On the other hand, some management companies go to excess on other maintenance issues such as repairs after a tenant has moved out. Typically, the security deposit should cover most items necessary to make a property re-rentable unless a bad tenant was placed and they have trashed your property. Some management companies use this as a way to increase their profits by over charging for these repairs. I recommend having a 3rd party inspect and/or bid any repairs that seem excessive to you.

How to Be a Top Commercial Property Manager Today

To be a top business land property chief you need strong business sector learning however you likewise require an exhaustive arrangement of individual abilities to coordinate the necessities of the property and the customers that you work for.

Numerous directors will move on from “private” property, and move into “business” property as a major aspect of developing and extending their vocation. Whilst the thought is great, there are numerous elements and issues required in changing property sort. Business property is altogether different and a great deal more perplexing than private property; the information base required of a man giving administration administrations is significantly more broad.

I would prefer not to frighten you off from business property administration as a vocation; yet I do need you to regard the aptitudes and information that you will require in the part. The expense for dealing with a business property is considerable, however with that comes the prerequisite for individual ability and property control with respect to the supervisor and the organization.

In discussing this, I am not as of now particularly bringing into the dialog retail property. Retail mall administration is significantly more intricate than business administration. The expenses in retail property are thus by and large higher than that which applies to overseeing business property.

Here are some other principle aptitudes required of the property administrator in playing out their every day and week after week obligations.

Arrangement abilities will dependably highlight as a major aspect of the occupation particular. Arrangements will be various crosswise over a wide range of circumstances including property renting, contracts and transactions, upkeep contractor’s, occupants, specialists, bookkeepers, and landowners. The business property director needs proficient abilities and appropriate preparing with regards to these various arrangement prerequisites.

Renting circumstances will emerge consistently from the oversaw properties. The bigger the portfolio, the more continuous the renting prerequisite. As I would like to think the property supervisor ought to be all around gifted in renting structures as well as renting arrangements. Thusly they can help the landowners that they represent as a component of selecting another inhabitants for the oversaw venture property.

Lease documentation will shift incredibly from property to property. This then says the property supervisor needs to comprehend the distinctions in leases, how to realize them, and how to decipher them. Rent audits, rental structures, support, alternative terms, repair necessities, and inhabitant agreements are all one of a kind circumstances that require master survey with every last rent in an oversaw portfolio. Basic dates will emerge from each lease archive as a major aspect of the administration procedure. Numerous an unpracticed property supervisor has ignored basic dates in the leases just to find that the landowners position has debilitated significantly as an immediate result.

Wage and consumption investigation will happen all through the money related year for an oversaw property. The salary should be upgraded, and the use should be reasonably controlled. The distinction between the two is the net pay and that will directly affect the estimation of the property for the proprietor. It is the property administrators obligation to guarantee that the best result is accomplished given the common economic situations.

Inhabitant interchanges ought to be all around kept up consistently. At the point when inhabitants are neglected or overlooked by the property director, connections soon harsh, subsequently this opens the property to precarious rental as well as opportunity variables. Stay in touch with every one of the inhabitants all the time. Record all interchanges in composing so that the important proof is accessible if any lease circumstance turns into the subject of a question.

Landowner reporting and controls will be novel to the specific proprietor. Whilst most organizations have some type of pay and use controls and particular reporting forms, it is up to the property director to decipher the reports and give the fundamental suggestions. Each month to month report created for the oversaw property ought to be deliberately checked as a major aspect of the month end process.

Upkeep controls will include crucial administrations and support contractual workers. The age of the property will have some effect on the systems behind repairs and support. The multifaceted nature of the property and the occupancy blend will likewise have sway on the upkeep action. Each lease ought to take into consideration the allowed use identifying with the occupancy. Upkeep might be a piece of that procedure and certain support expenses might be connected to the occupant or the landowner relying upon the specific lease circumstances. I backtrack to the point that every lease should be completely comprehended by the property chief.

Property execution is accomplished through a fine adjust of the greater part of the above issues. That is the reason exceptional abilities and learning are a piece of the employment detail for a business property administrator.

Role Played by Property Managers in Enhancing the Value of Your Assets

Real estate sales can give an unbelievable and steady stream of income when your approach is correct. Rather than selling the property as such, giving it a face-lift will add more value to it. When a sweet is warped in a shiny and attractive paper there is a strong tendency to pick and taste it. Likewise, when you do some modifications or additions in your property it will become a high valued asset. If you are not getting enough time to look after your property, then assign the job to professional property managers.

A Property Management Service helps in maintaining the property, finding qualified tenants, striking rent deal with tenants, collecting rents and dealing with litigations, if any. If it is a vacant property then the manager will do all kinds of repair and maintenance works and prepare the property for rent.

On behalf of the property owner the property managers will search for the right tenant. For maximizing the rent value, the managers adopt various marketing strategies and promotional marketing activities. All such efforts can contribute towards getting maximum returns.

Hiring a manager is your personal decision. Consider the below mentioned things to decide whether you want to hire a property manager or not.

Location of your property – When your property is miles away from your residence it will become difficult to maintain it. Without getting proper care your property start degrading. You can avoid such situations by appointing a property manager. As a person fully dedicated in doing property maintenance works, a manager will take care of all the issues related to the property.

Consider total space – If you have only few cents then it is not advisable to hire a property manager. But if you have few acres of land then the assistance of manager is a must. If you have a three storied building with 5 to 10 tenants, then it is better to allocate the work to a property manager. He will look after the property, do all maintenance and repair works and make sure the tenants are satisfied with the services. He will also collect rent on behalf of the owner and update rental deeds whenever necessary.

Check the experience of the property manager – Before hiring one it is better to check the background details. You can ask his previous employers or people who know him to collect more details. Hiring an experienced manager can help in carrying out all sorts of work without any clarifications. A manager should know things related to property prices in particular areas, the rent deeds, preparation of profit/loss statements, property tax and property insurance.

Do you want to give up the control? – By hiring a manager you are giving him rights to act on behalf of you. If you are a busy person, then it is better to assign the task to a property manager. He will do all kinds of property related deals, other than selling for you and submit the records for your verification.

A well maintained property can grow your investment. Think carefully about the significance of a property manager to maintain your assets, to make a wise decision.

Why You Don’t Need a Property Managing Agent for Your Block of Flats

If you are a member or even a director of one of the many freehold or leasehold property management companies which are responsible for the maintenance and repair of blocks of flats or apartments what do you think?

Does your company really need the in depth property management advice offered by the professional property managing agent? Or is such a move just another waste of service charge funds?

Increasingly many directors and company members are shifting towards the employment of specialist property managing agent professionals to share responsibility and to advise and guide their property management company through the maze of legislation surrounding the residential sector.

However many others are resolutely sticking to their guns and continuing to manage their companies and their property estates in house.

So what is all this legislation and what else do the directors and decision makers who are ultimately responsible for the management function need to know?

Current legislation in England and Wales is largely defined under well established landlord and tenant law as subsequently revised by the more recent Commonhold and Leasehold Reform Act 2002.

In summary, any terms included in any residential lease cannot be upheld where they do not comply with current statutory legislation. As a result, parts of the lease may not be enforceable and may be deemed illegal. This means that property management company members and directors must be compliant with the requirements of statute, however well they might have read and understand the property lease.

Property block management therefore involves knowledge and expertise in how statute will vary the terms of how the lease is interpreted.

The Regulatory Reform (Fire Safety) Order brought in to effect significant changes. The new fire safety rules came into force on 1 October 2006 and affect all non-domestic premises in England and Wales.

If you are responsible for non domestic premises then you need to act by undertaking or arranging a fire risk assessment. This is an organised appraisal of work activities and the workplace which now includes by definition the common areas of your residential premises. It is therefore an essential part of your block management duties.

The risk assessment should identify potential fire hazards, for residents, employees and visitors who might be in danger in the event of fire. You should evaluate the risks arising from the hazards and decide whether the existing fire precautions are adequate, or whether more needs to be done.

If you do not employ the services of property management agents this means that your management company members and directors must be compliant with The Regulatory Reform (Fire Safety) Order.

The Data Protection Act controls how personal information you hold is used by organisations, businesses or the government. Everyone, including you, who is responsible for using data has to follow strict rules called ‘data protection principles’. In summary you must make sure the information you hold is:

used fairly and lawfully
used for limited, specifically stated purposes
used in a way that is adequate, relevant and not excessive
accurate
kept for no longer than is absolutely necessary
handled according to people’s data protection rights
kept safe and secure
not transferred outside the UK without adequate protection

There is stronger legal protection for more sensitive information, however the above information should be sufficient to make you aware of the need to comply.

If you do not employ a property management services agent this means that your property management company members and directors must be familiar with and compliant with The Data Protection Act and the ‘data protection principles’.

The above examples are merely a few of the many areas of estate property management affected by ever growing legislation and red tape.

Other important matters which are affected include the treatment of service charges, tenants’ rights, legal landlord notices required, increased powers conferred on the LVT or leasehold valuation tribunal, consultation procedures for Qualifying Works under Section 20 of the Commonhold and Leasehold Reform Act, and enfranchisement and new right to manage principles giving the leaseholders in qualifying properties the right to take over the management of their properties.

If you are familiar with the majority of the above property block management legislation and have the time available then you are probably well informed and very capable of managing your estate or block of flats.

If however you have found that this article has provided you with new information then you might want to think about taking professional advice about how you manage your company and your estate to ensure you are not at risk.

Whilst directors and officers liability insurance cover is available to help protect you in the event of negligence it is doubtful how far this will cover those who could be thought to have willfully ignored statutory legislation. It is particularly important to realise that any serious breach of health and safety legislation is treated as a criminal offence for which a heavy fine or custodial sentence may result.